The United States Bankruptcy Code has long offered debtors an opportunity to either eliminate debts or restructure the repayment terms for financial obligations that have grown unmanageable due to changes of life circumstance or other factors. Revisions to the law in 2005 introduced an additional quirk into the already confusing and complicated filing process in the form of the new bankruptcy means test that was for use to determine a debtor's eligibility for Chapter 7 bankruptcy in lieu of Chapter 13 bankruptcy. In many situations, Chapter 7 bankruptcy represents a more desirable option because it results in the total forgiveness of many debts, whereas Chapter 13 simply stretches out the terms of payment over a 3-5 year period, with a 5-year bankruptcy plan being the norm.
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The stated intent of the bankruptcy means test is to prevent debtors from fraudulent or abusive bankruptcy filings that would essentially excuse their debts without regard to other financial considerations such as income. Unfortunately, as a consequence of the provisions set forth in the amendments to the law, many individuals and families who are on the threshold or simple done a disservice by rigid bureaucratic expense schedules are locked into a Chapter 13 bankruptcy plan. This subjects them to an ongoing strain and does little to help them rebuild their financial standing or to adopt better practices.
Crunching Numbers
One of the discouraging and unavoidable facts of the bankruptcy means test is that it is solely calculated using raw number data. There is no consideration given to a family's unique circumstances or any mitigating factors that impact a debtor's ability to meet the demands of a particular repayment plan. This turns an already difficult event into one that can feel more than a little dehumanizing as your life is essentially torn apart around you, without any regard being given to the fact that it is your life. That seems contrary to the spirit of the bankruptcy code, which aims to offer both debtor and creditor at least a partially beneficial solution to an intractable financial struggle.
Instead, whether one is eligible to file for Chapter 7 bankruptcy hinges upon numbers. The bankruptcy court will review a debtor's average monthly income over the course of six months prior to the filing date and compare that to the median income level for a similar party in the same state. This creates an immediate divide, as it means that only half of debtors (the half whose income falls below the median) are immediately granted the right to file.
Debtors whose income exceeds the median then have their income figures put through similar mechanisms to evaluate Chapter 7 eligibility. To make this calculation:
The amount of approved living expenses is subtracted from income to come up with an amount that is considered available for debt repayment each month. That amount is multiplied by 60 to arrive at the 5 year total. If this result is greater than $10,000 then Chapter 7 is off the table If less than $10,000 but still in excess of your availability, then percentage based calculations of debt payment vs. debt amount come into play
Knowing What to Do Next
The odds are that if you are reading this, you are in a position where bankruptcy seems like it may be the best option. Take the step of consulting with an experienced attorney so that you can be sure that you make wise choices for your financial future. Contact the Arizona bankruptcy lawyers of the Harmon Law Office, L.L.C.
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